Pests Be Gone, Inc., has sales of $679,000, total costs of $405,000, depreciation expense of $46,000,...

Pests Be Gone, Inc., has sales of $679,000, total costs of $405,000, depreciation expense of $46,000, interest expense of $30,000, and a tax rate of 40 percent. If the firm paid out $79,000 in cash dividends. What is the addition to retained earnings? Note: This problem is to give you practice constructing the income statement. COGS and selling/administrative expenses have been lumped together.

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Expert Solution

Preparing Income Statement of Pests Be Gone :-

Particular	2018
Sales	679,000.000
Less: Total Costs	(405,000.000)
Less: Depreciation	(46,000.000)
EBIT	228,000.000
Less: Interest Expense	(30,000.000)
Taxable Income	198,000.000
Less: Taxation (40%)	(79,200.000)
Net income	118,800.00
Common Dividend paid	79,000
Additions to RE	39,800

Addition to retained earnings = Net income - Dividend paid

= $118,800 - $79,000

Addition to retained earnings = $39,800

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